When we’re facing financial challenges, our first instinct may be to hide this reality from creditors. This strategy may work for a short period of time, but serious financial issues often cause us to fall behind on payments — in which case creditors will definitely notice, and report your lapsed payments to credit reporting bureaus, too.

If your financial plan has been knocked askew by a financial hardship — like a divorce, layoff, natural disaster, death in the family or medical issue — it’s best to get in touch with creditors proactively so you can hopefully figure out a plan. Only if you open these lines of communication do you have a chance to salvage the situation best you can. If you wait until you’ve already missed too many payments, it’s generally too late for creditors to do anything, and your credit score will have already taken a hit.

Many borrowers go the route of writing a hardship letter to their creditors. The purpose of this letter is to explain the circumstances and try to work out a plan moving forward. Here are five tips to keep in mind as you sit down to craft a hardship letter.

Be Honest About Your Hardship

First and foremost, you’re trying to clue creditors into why you’re having trouble fulfilling your financial obligations. This means walking the line between downplaying your circumstances and exaggerating them. The goal is to deliver an honest account of what’s happening.

As the National Foundation for Credit Counseling advises, be “honest, calm and detailed” about exactly what’s impacted your finances. This means providing enough supporting details to paint a clear picture of your hardship without making the letter so dense it’s difficult to parse through.

Keep Your Tone Polite and Factual

Stick to the facts and always remain polite. It’s completely understandable to feel frustrated at your circumstances, but it’s not a creditor’s job to respond to anger, blame or self-pity. Avoid using the letter as an opportunity to vent or to make demands related to your financial situation.

State Your Desired Objectives Plainly

Hardship letters can serve a variety of purposes. Here are some common objectives:

  • Lowering your interest rate
  • Reducing your minimum payments due
  • Waiving outstanding fees
  • Modifying your loan terms
  • Making your account current
  • Writing off past-due amounts
  • Working toward a settlement

The idea here is that lenders would often rather work directly with borrowers to come up with a plan rather than risk the borrower defaulting altogether. This is also the logic used by debt relief programs when they negotiate with lenders, aiming to reach a mutually agreeable reduced settlement.

Offer a Plan of Action

A key component of an effective hardship letter is offering up a proposed plan of action for the future. This means you’ll need to dive into your budget to understand what you can realistically afford to offer as a solution. It does little good to offer up a plan that sounds good but is financially impossible for you to carry out; be realistic in your proposal here.

Include All Relevant Documentation

Reinforce your hardship letter by including relevant documentation to back up your story — like bank statements, tax returns and pay stubs. These resources should help creditors establish you’re telling the truth about the nature of your hardship, and that your proposed plan is based on actual numbers.

It can be daunting to reach out to creditors because you’re facing financial hardship, but it’s the only way to reach a workable plan before your accounts slip too far into delinquency.

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